Safety-net health systems play an essential role in the US health care system by providing care to low-income and vulnerable populations, including the uninsured and individuals with Medicaid. Even after coverage expansions under the Affordable Care Act (ACA), about 27 million Americans remain uninsured and millions more underinsured, for whom safety-net health systems play a major role in providing inpatient, emergency, and ambulatory services.
The financial viability of safety-net health systems may be increasingly in peril given the recent elimination of the individual mandate penalty—which the Congressional Budget Office estimates may lead to 13 million additional uninsured people by 2027—and cuts to disproportionate-share hospital (DSH) payments. DSH payments offset the cost of caring for low-income patients. Although the Centers for Medicare and Medicaid Services (CMS) did recently signal a year-on-year increase of $1.6 billion in Medicare DSH payments, anticipating an increase in uninsured patients, overall DSH funding is set to fall by $44 billion in the coming decade. Many of the most affected hospitals are in weak financial condition. The recently passed budget bill delays cuts until 2020 but increases the annual reduction thereafter: $4 billion in 2020, followed by $8 billion per year through 2025.
Growing financial challenges faced by safety-net health systems should concern not just system administrators and low-income patients but also neighboring hospitals and state governments, for which safety-net systems help defray the costs of uncompensated and undercompensated care. When uninsured patients receive care, health systems often bear the cost: In 2016, hospitals alone provided $38.3 billion in uncompensated care, and by some estimates, government funding offsets only 65 percent of such costs. While policy debates focus on overall insurance coverage, less attention is paid to heterogeneous effects of coverage changes when considering the varying payer mix across providers. Hospital margins on average have risen to 30-year highs, driven by commercial prices, but hospitals with fewer commercially insured patients face a different reality.
Recent years have brought a wave of hospital closures, especially in rural and suburban areas where hospitals are struggling financially. What happens when a safety-net health system closes? Evidence suggests that the total demand for uncompensated care in a health care market does not change and that there is nearly complete spillover of uncompensated care to remaining hospitals. Each newly uninsured individual is associated with a $900 increase in uncompensated care annually, and some recent Medicaid disenrollment has likely resulted in even larger per capita uncompensated cost growth.